OPEC likely to extend production cuts into next year

"His visit appears to have been a success given that Iraq, which was previously willing to extend the production cuts only by six months, has now signalled its agreement to nine months", Fritsch said.

"Despite a supply cut extension being factored in by the market, oil prices have made only modest progress".

The agreement helped lift the oil price to the current level of just above $50 per barrel, although this is still less than half that of 2014.

It comes ahead of the oil producing cartel meeting this week to debate how to tackle a global glut of crude.

"You had oil already in the pipeline that was in ships on their way here and that had to work its way through the system", said Dan Steffens, president of the Houston-based Energy Prospectus Group.

OPEC sees the market rebalancing by the end of 2017.

US oil production has already risen by more than 10 percent since mid-2016 to over 9.3 million bpd as its drillers take advantage of higher prices and the supply gap left by OPEC and its allies.

Benefiting from a market structure known as contango in which future oil prices are higher than those for immediate delivery, US drillers have sold future production in order to finance expanding output.

"OPEC represents a smaller share of the oil market", he said.

By June, it is forecast USA shale oil producers, who have boosted production 10 per cent since September, will add 5.4 million barrels a day to the market.

Image result for Oil ministers meet in Vienna ready for production cuts

OPEC leader Saudi Arabia embarked on an expensive experiment to see just how resilient US oil production would be to low oil prices.

"There's a recognition that the world has changed", said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University.

Khalid Al-Falih Minister of Energy, Industry and Mineral Resources of Saudi Arabia leaves the building of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Wednesday, May 24, 2017.

The decline in crude oil inventories was likely a function of a decline in imports.

OPEC has a self-imposed goal of bringing stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion.

Having cleared this week's USA data, the focus now shifts to the outcome of the Opec meeting tomorrow, said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics in London.

At the moment, OPEC's 13 member countries and 11 other nations appear to be on the verge of reaching a deal this week.

The member countries of the Organisation of Petroleum Exporting Countries will have a delicate balancing act when they meet in Vienna on Thursday to decide whether to extend an agreed cut in oil production, that started in January, to the end of the year or beyond.

OPEC members Iraq and Algeria as well as top non-OPEC producer Russian Federation also supported a nine-month extension but some Gulf OPEC members, including Kuwait and the United Arab Emirates have pointed to a need for further analysis.

However, it is widely expected that the deal will be extended, with the only real questions being for how long and whether cuts will be more severe.

  • Zachary Reyes